GST May lower product Costs Upto 10%

GST is going to benefit manufacturers, logistics company and also to those who are engaged in providing warehousing services.

Present Scenario

It is going to be a boon for those companies which have factories at different locations in India . Say , if a company has 5-6 manufacturing units at different places in India , then they may be having various warehouses in different states . This shall be most applicable to FMCG products , e-commerce distribution, logistic company, retail chains etc . At present, this is being practiced to save taxes as rate differs in different states .

Uniform GST

With a uniform GST rate in all states , there may be reduction of warehouses and distribution models . This will ultimately reduce the expenses towards setting up new warehouses, maintaining such existing warehouses , manpower expenses, recurring costs attached to it etc . Hence, a consolidated warehouse structure will emerge which will ultimately result lower cost and better economies of scale.

Cost Effectiveness

It will also result more options of transportation of goods since priority will shift from tax management to cost effective mode of transportation . Even other modes of transportation will be possible say by road, by rail, by sea or even by air . It will increase cost effectiveness and accordingly will lower prices of raw materials or final products.

It must be understood that the landed cost is always dominated by cost of transportation and warehousing . Hence , this biggest expense will cool off in future .Further , the time period of supply and distribution will also reduce and smoothen . Because , the movement of trucks between the states would also improve with lesser time to cross check posts as well.

Temporary Inflation

At the same , we must caution that there will be temporary increase in inflation . The similar effect, after implementation of GST , has had been observed in other parts of the world and the recent being Malaysia where GST was implemented in April, 2015 . Even if we consider that the situations and business models are different in India differe in India then too, the outcome of GST in medium term shall be in positive only.